D181 Advisor: Flat Levy Will Lead to Quicker Deficits

Attendees at the District 181 Board of Education meeting Monday night at might have gotten a preview of the board's final discussion tax levy to be set in December.

Board members were presented four levy scenarios by senior financial advisor Michael Frances of PMA Financial Network, the district's financial consultant, that would lead the district to different long-term fiscal conditions. 

If the max levy is issued in December, the district’s local revenue would increase by 2.72 percent from Fiscal Year (FY) 2012 to FY 2013, according to Frances' presentation. After all expenses, the district would have a surplus at the end of each fiscal year if max levies were continuously collected until FY 2017, when it would run a $356,098 deficit if expenditures rise to expected levels. The low-point fund balance that year, which is usually reached in the spring as the school year winds down, would be over $5 million.

If the 2011 levy was not increased over last year’s levy and all other factors remained the same, District 181 would run a $200,353 deficit in FY 2013. Even with max levy increases in ensuing years, that deficit would be at $1,258,409 by FY 2017. The low-point fund balance in FY 2017 would be under $600,000 if the district did not levy to the max in 2011.

The two other scenarios PMA ran accounted for the district rebuilding its educational program, which would include increased expenditures. Superintendant Dr. Renée Schuster said those include increased foreign language staff and additional technology upgrades yet to be determined.  

With the additional expenditures, a max levy in 2011 would lead the district to a $158,755 deficit in FY 2013 and a $1.54 million deficit in FY 2017 if max levies are continuously collected. Without a levy increase in 2011, rebuilding the education program would lead the district to a $978,645 deficit in FY 2013 and a $2.44 million deficit in FY 2017.

The district’s fund balance would be more than $500,000 in the red at its low point if it rebuilt the education program with a max levy in 2011; it would be more than $5 million in the red if the levy was not increased. (Frances said these negative low-point balances would not happen in reality because the district would certainly do short-term borrowing before it ever ran out of money.)

Frances said PMA is presenting the facts, not endorsing any course of action.

"I’m not recommending that you do anything, per se, in terms of your tax levy," he said. "I’m showing you what the results will be." 

Board President Michael Nelson and board member Brendan Heneghan both said the district should look at middle-ground scenarios where the district does not keep the levy flat, but it also doesn’t levy to the max.

“We are in unique financial times and can’t assume that just constantly forcing the max on everybody is going to be sustainable,” Nelson said, noting that combining a max levy with falling property values will raise tax rates significantly. “Sooner or later folks are going to go find somewhere else, regardless of how good the schools are.”

Frances said PMA can run additional middle-ground scenarios.

Assistant superintendant for business Dr. Troy Whalen said during an Oct. 17 board discussion that by not levying to the max, the district leaves dollars on the table in future years because a levy cannot exceed 105 percent of the prior year’s amount. So a non-max levy this year means the 2012, 2013, and 2014 max levies would be smaller than they could have been.

Nelson said he has a problem with the entire thought process of the levy discussion.

“We’re looking at this as how much money can we get and then we’ll figure out what we’ll spend it on,” Nelson said. “That seems kind of ass-backwards to me.”

Among the assumptions PMA used for its projections were that the CPI will by 3.2 percent in 2012 and 2.5 percent in the ensuing years, and that taxable property grew by $25.3 million in 2011 and will increase by $20 million in ensuing years. PMA assumed flat federal revenue and decreasing state revenue, no changes in District 181 staffing levels—meaning the district's salary expenditure will rise with future wage increases—and an eight percent annual increase in health insurance costs.